Mobilising the opportunities for construction

Steel, electricity and cement are among the key commodities that drive economies. As South Africa’s largest cement producer, PPC therefore recognises its role as an enabler and technology partner, says Njombo Lekula, managing director, PPC South Africa, emphasising the vital importance of public and private sector collaboration.

By Alastair Currie

Njombo Lekula, managing director, PPC South Africa The cyclical nature of the construction sector entered new territory with the advent of Covid-19. In South Africa’s case, it deepened an already depressed civils and building market, but the medium- to longer-term outlook is positive.

“The South African government has long acknowledged the vital importance of the construction sector and its role in driving an infrastructure-led economic recovery. It’s also a proven and accepted model globally, especially within the context of a postCovid-19 revival, with G7 and G20 countries investing in this area as a catalyst for socio-economic growth,” says Lekula.

“As a percentage of South Africa’s GDP, construction is typically pegged at about 4%. However, if you include the influence on the rest of the value chain, the figure is far higher, with a clear opportunity to create employment,” he continues.

After the 2010 FIFA World Cup boom period, South African construction lost momentum, leading to a growing infrastructure backlog, compounded by increasing fiscal constraints. The question now frequently raised is, “Where will the money come from to rebuild and grow the economy?”

The only workable response is that growth cannot occur in isolation and moving forward requires intensified and collective investment by the public and private sector to unlock initiatives like the South African government’s Infrastructure Fund. Essentially, it requires teamwork.

“One of the starting points is to create the right enabling environment and policy framework, which empowers the private sector to assist government in reaching our common objectives. Within PPC, our proven expertise in engineering, logistics, project and programme management makes us a vital enabler in facilitating positive change and delivering on micro and macro initiatives,” Lekula explains.

Within the micro space, PPC is already forging ahead with a series of SMME development programmes that support job creation and skills development within construction and allied industries.

“One of the core areas that must be addressed is the widespread issue of underperformance within municipalities, which deters private sector investment and impedes the execution of infrastructure projects,” Lekula points out.

Operational strategies

To weather the peaks and troughs, some two years ago, PPC revisited its business model and embarked on its Three Mega Plant strategy as the construction industry

continued to slump. This strategy entailed remaining responsive to cyclical demand at its two key inland plants, and its Western Cape plant, while “soft mothballing” other areas of production capacity. This enabled PPC to reduce unnecessary overheads, retain personnel, and remain agile and flexible.

At peak capacity, the total South African cement market is geared to produce approximately 18 million tonnes per annum. The total demand in 2019 was estimated at around 13 million tonnes, which underscored the tougher trading conditions at the time. The upside though is that, going into 2021, total demand is now sitting at between 14 and 15 million tonnes, indicating an upward trend.

This trend was confirmed by PPC’s own experience as it emerged from the first hard lockdowns in 2020 facing an unexpected surge in cement demand from the retail sector, spurred on by lower interest rates and an associated growth in residential housing projects.

Thanks to its Three Mega Plant approach, PPC was quickly able to reactivate dormant production units and meet customer requirements.

“This retail surge indicates that the opportunities are there and that independent entrepreneurial visions within the informal building market can be channeled far more effectively when linked to key government mandates like low-cost and affordable housing delivery, backed by key producers like PPC,” says Lekula.

“We are engaging with the Department of Human Settlements to propose best practice ways to involve communities in addressing the housing backlog. That includes suggestions on the adoption of alternative building technologies,” he expands.

A partnership approach that embraces local

To build South Africa, PPC is also engaging with state-owned entities (SOEs) like Eskom and Transnet. PPC is one of Transnet’s major clients and a crucial logistics partner. A prime example is the rail support needed to ship cement from PPC Slurry’s Mahikeng plant to its Gqeberha operation to meet coastal supply requirements. In turn, Eskom is an essential partner in ensuring sustained power at PPC’s operations.

“We continuously engage with our SOEs to help resolve stumbling blocks and unlock the economy through various proposals. This includes suggestions to improve operational efficiencies within SOEs and ways government can leverage our expertise to grow new markets,” he explains.

The opportunities presented by power station coal ash are a good example. Currently, it’s estimated that South Africa beneficiates around 14%, compared to other major coalfired electricity producers like India, which beneficiates up to 50% of their ash. This product is used as an additive in cement, but there are more applications that can be considered, like paint manufacturing.

“Our engagement is an ongoing process, but an encouraging one,” says Lekula. “However, in return and as an industry, we expect government’s full support when it comes to fostering localisation and providing a clearer infrastructure delivery roadmap.”

We continuously engage with our SOEs to help resolve stumbling blocks and unlock the economy through various proposals.”

Cement import issue

Together with other private sector stakeholders, via industry association Cement and Concrete South Africa (CCSA), PPC is currently engaging with the Department of Trade, Industry and Competition (DTIC) for further clarification on the National Construction Industry Master Plan. The industry, via the CCSA, is also seeking resolution on lowerpriced cement imports.

During the 2019 construction industry slump, South Africa’s local cement industry had an excess capacity of some 5 million tonnes. However, despite this, around a million tonnes of cement was still imported from countries like Vietnam and China.

The objective of the industry’s DTIC application is not to rule out fair competition, but to ensure that cement imports are priced on a local level that factors in the South African industry’s cost of meeting BBBEE, Mining Charter and carbon tax obligations, and adhering to local quality standards.

The hard lockdowns significantly restricted cement imports, which had a positive impact on local producers, who were able to bring idling plants back into operation. This was possible thanks to a dedicated industry strategy to ensure that standby capacity would always be available. The result was that sectors of the construction economy, particularly the SMME home-building market, could rebound faster from the economic fallout of Covid-19.

“It’s not what we intend to do, it’s about how we plan and implement. Together, as one nation, we can do and achieve more,” Lekula concludes.